Direct Tax

Direct Tax System in India

In country like India, people love to share power, liberty and freedom that they get in their task and profession after getting success in their target. Although the celebration and success time comes in different time period for specific peoples for their targeted task and received success. Sadness of failure and emotion of getting huge success in task is two main tasks that bring people of our country together and people handle these emotions quite impressively.

To bring economy of the country, government imposes direct tax including income tax as per income of individual and institutions. As per policy of government to bring maximum changes in lifestyle of the people of country.


Direct Tax

As per their policy every government imposes various taxes on sales and goods. In most of the countries there are two types of taxes indirect tax and direct tax. Generally tax we paid to government directly is known as direct tax and its mandatory to for taxpayers to pay the tax amount before last date of payment. User can not transfer this tax to other one and government imposes this tax directly on organization and individuals.


Example of Direct Tax

Here are prime examples of direct tax
a. Corporation Tax
b. Income Tax
c. Wealth Tax


The Central Board of Direct Taxes in India

CBDT or Central Board of Direct Taxes is only authorized and responsible organization in India that handles all direct tax related activities. As per central board of revenue act 1924, foundation of this organization laid by government of India. Central board of direct tax is wing of finance ministry and department of revenue and agency also play vital role in tax related policy making.

CBDT processing handle by the CBDT chairmen along with six highly qualified team members who helps in implementation of new policies. Members appoint by the government are special secretary of government of India. This agency is head of all direct tax related policies not only in invention but in implementation too.


Direct Tax Code

To make Indian direct tax system much effective, efficient and equitable government of India in place of that time tax system bill and income tax act 1961. Latest law will not only replace current tax system but at the same time it will help to boost the GDP of country. This law is consist of around 22 schedule and 319 sections and will bring much stability, authentic taxing incorporation, efficiency as per international tax standards.


Key Features of Direct Tax Code

a. Annual investments in approved funds and insurance proposed at Rs.1, 50,000, instead of Rs.1, 20,000.
b. Political contributions of up to 5% of the gross total income will be eligible for deduction.
c. A single unified taxpayer reporting system can be facilitated, By bringing all direct taxes under a single code with unique compliance features,
d. The statute has been structured in a way that can accommodate the changes and requirement of a growing economy without having to constantly resort to amendments.
e. Fringe benefits tax will be charged to the employee rather than the employer.
f. Special care has been taken to avoid contradictory and ambiguity in the code, to avoid misinterpretation and misuse.
g. Regulatory functions are to be carried out by other regulatory authorities, keeping it simple.
h. All rates of taxes introduced by the DTC, somehow, is available in 1st to 4th schedule of the DTC itself, and any modification will be based on decision of Parliament as an Amendment Bill.
i. In the present direct tax system, the tax rates are proposed in the finance Act of the respective year.


Types of Direct Taxes One Pays

As per policy issued by the authorized agency there are various forms and types of taxes but there are two main tax indirect and direct tax that imposed on eligible person.


List of Direct Taxes

Corporate Tax

1.Includes Securities Transaction Tax (STT) which is a tax imposed on taxable securities transactions. There is not surcharge applicable on this.
2. Levied on companies who exist as separate entities from their shareholders.
3. A tax levied on any amount declared, distributed or paid as dividend by any domestic company is known as Dividend Distribution Tax (DDT). International companies are exempt from this tax.
4. Foreign companies are taxed on income that arises, or is deemed to arise, in India.
5. A tax levied on taxable securities transactions is known as Securities Transaction Tax (STT). There is not surcharge applicable on this.
6. It is charged on royalties, interest, gains from sale of capital assets located in India, fees for technical services and dividends.


Capital Gain Tax

1.Voluntary tax that is paid by the taxpayer when the asset it sold.
2. Taxed on the income derived from the sale of assets or investments.
3. Categorized as short-term gains (gains on assets sold within 36 months of acquisition) and long-term gains (gains on assets sold after 36 months of acquisition and holding).
4. Capital gains = (money received from sale) (cost of capital investment).
5. Capital investments cover homes, farms, businesses, works of art, etc.


Income Tax

1.Income tax is charged on an income known as taxable income, which is: Taxable income = (total income) (applicable deductions and exemptions).
2. Income tax is the most important and most common tax that an Indian must pay.
3. Its charged to individuals, co-operative societies, firms, companies, Hindu Undivided Families (HUFs), trusts and any artificial judicial person.
4. It is charged directly on the income of a person.
5. The rate at which it is charged varies, depending on the level of income.

Income tax will be applicable on following category too:
a. Income from other sources.
b. Income from house and property.
c. Income in the form of capital gains.
d. Income from business or profession.
e. Income from salaries.


Wealth Tax

1. Chargeability depends on residential status.
2. Wealth tax is charged on the benefits derived from property ownership.
3. The tax is levied on the individuals, HUFs, and companies alike.
4. The same property will be taxed every year on its current market value.
5. Wealth tax is charged whether the property in earning an income or not.

Assets specified below will not be part of tax system:
a. House property let out over 300 days in a year.
b. Assets held as stock in trade.
c. House property held for business or profession.
d. Gold deposit bonds.
e. Property held as a commercial complex.


Tax Rate for Different types of Tax

Wealth Tax

1.Wealth tax has been abolished with effect from April 1, 2016.
2. Is charged on the net wealth, which is sum total of all taxable assets clubbed together, minus the amount of debt owed.
3. Wealth tax is charged at 1% of the amount by which the net wealth exceeds Rs. 15 lakhs.
4. Net wealth = (All assets) (all debt).
5. The valuation date for net wealth is 31st March immediately preceding the assessment year.


Capital Gain Tax

1. Long term capital gains are taxed at 10% if computed without the benefit of indexation.
2. Short term capital gains are taxed as per the normal income tax slab rates.
3. Long term capital gains are taxed at 20% if computed with the benefit of indexation.
4. Method of indexation using the cost inflation index will be done to the cost of acquisition and the cost of improvement, and the resultant figures will be used for computation.


Corporate Tax

For international companies
1. That are earning more than 10 crore rupees, a surcharge of 5% is applicable in addition to basic tax.
2. That are earning less than 1 crore rupees, a corporate tax of 41.2% is applicable inclusive of 40% basic tax and an education cess of 3%.
3. That are earning more than 1 crore rupees, a corporate tax of 42.024% is applicable inclusive of 40% basic tax, 3% education cess and a 2% surcharge.


For Domestic Companies
1. If the net income of the company exceeds Rs.10 crore, a surcharge of 10% is applicable on the net income.
2. The Corporate Tax rate for domestic companies is 30%.
3. If the net income of the company is in the range of Rs.10 crore, a surcharge of 5% is applicable on the net income.
4. If the company does not have an income of over Rs.1 crore, then it does not have to pay any corporate income tax.


Income Tax

For Individual residents above 80 years of age


# Income Slab Tax Rates
1 Taxable income above Rs.10,00,000 Rs.1, 00,000 + 30% of the amount by which taxable income exceeds Rs.10,00,000.
2 Taxable income under Rs.5,00,000. NIL
3 Taxable income between Rs.5,00,000 and Rs.10,00,000. 10% of the amount by which the taxable income exceeds Rs.3,00,000.

For individual residents under 60 years of age


# Income Slab Tax Rates
1 Taxable income above Rs.10,00,000 Rs.1,25,000 plus 30% of the amount by which the taxable income exceeds Rs.10,00,000.
2 Taxable income above Rs.5,00,000 and Rs.10,00,000. Rs.25,000 plus 20% of the amount by which the taxable income exceeds
3 Taxable income between Rs.2,50,000 and Rs.5,00,000. 10% of the amount by which the taxable income exceeds Rs.2,50,000.
4 Taxable income under Rs.2,50,000. NIL

For individual residents between 60 and 80 years of age


# Income Slab Tax Rates
1 When income is under Rs.3,00,000. NIL
2 When income is between Rs.3,00,000 and Rs.5,00,000. 10% of the amount by which the taxable income exceeds Rs.3,00,000.
3 When income is between Rs.5,00,000 and Rs.10,00,000. Rs.20,000 plus 20% of the amount by which the taxable income exceeds Rs.5,00,000.
4 When income is more than Rs.10,00,000 Rs.1,20,000 plus 30% of the amount by which the taxable income exceeds Rs.10,00,000.

Benefits of Direct Tax System

a.Creates similar property sharing: The government imposes extra taxes from those who can afford them, and uses this money to uplift the lower and poorer sections of society.
b.Equitable: It would not be ideals to shift all burden of tax on specific section, to handle it wisely government impose tax on every person as per their eligibility.
c.Consciousness of duty: People can claim the right to know how their money is being spent by the government as people consciously pays their taxes and nothing is wrong with this.
d. Economical: Income tax and most other forms of direct taxation are done at source with the help of TDS (Tax Deduction at Source), and are hence not a problem for the government to collect.
e. Effective: Direct taxes are very productive and flexible in the sense that as the job oriented and business professionals population and community grows, so do the returns from direct taxation.
f. Certainty: Taxpayer and the government know how much to pay and how much to expect to collect respectively. This is quite sensible approach and understanding from both side to deal with tax system easily.


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